Resilience, rationality and how we make decisions

September 25, 2013

BlogikuvaWe have been studying companies’ connections and disconnections for more than twenty years and have worked inside a huge number of them. Across all this research, common themes have emerged and intensified during the past few years: good communication in the era of the Internet and the new interactive tools does not mean any more that companies should listen carefully to their customers or that leaders should talk clearly with their subordinates. The linear view of communication, the movement of messages or sharing of content between people is giving way to a totally new understanding of what interaction, and work, are all about.

The first emerging theme is that communication is in fact a process of continuous coordination and knowledge creation. Knowledge is not shared as contents, but arises in action. Knowledge is never transmitted from one mind to another. It is a change from the movement of messages to a joint movement of thought. The future and viability of an organization depend on this process.

Economics still makes the assumption that individuals, the agents, as they are called, operate autonomously, separately from the influences of others. When choosing something, making a decision from a set of alternatives, the agent compares the attributes of the alternatives and selects the one that corresponds to her preferences. It is a world where independent individuals carefully weigh up the costs and benefits of any particular course of action.

However, scientists have emphasized the limits of our understanding. An important point is that these limits apply to everyone. They apply to politicians, to central bankers and to top executives of multinational companies. John Maynard Keynes once wrote that we have, as a rule, only the vaguest idea of the consequences of our actions. Herbert Simon and Stuart Kauffman on the other hand have argued that the number of future paths open to us at any point in time is so vast that it makes no sense at all to speak of the best or optimal decision.  But we still think the world works like a predictable machine operated by rational agents

Behavior that does not follow an economist’s definition is often called irrational, but it may be that in a world of ubiquitous networks, a proliferation of choice and an abundance of information, the economic definition of rationality has itself become outdated and irrational.

We need a new model of rational behavior and a new understanding of how we make decisions. We need a new decision model!

The second emerging theme is that the assumption that people make choices in isolation, that they do not adopt opinions simply because other people have them, is no longer sustainable. The choices people make, their buying decisions and their political views, are directly influenced by other people. That is to say that we construct our world together in communication. Network scientists such as Duncan Watts and Mark Granowetter have proved that the world comes to be what it is for us in our relationships. In the end it all depends on the company you keep and the conversations you have.

This leads to the importance of emphasizing relations instead of reductionism and separations. Reductionism means that the organization is understood as being split from its environment and one functional team is seen as being separate from another function. The worst mistake we make as a result of reductionist thinking may be that we assess and reward employees as if they were disconnected from other employees.

Links and communication are at the centre of organizational life. Depending on the quantity of interdependent links and the quality of communication, the organization lives or dies. Work is interaction between interdependent people.

The third emerging theme is that communication creates patterns. Words become what they are through the responsive actions of the people taking part. The relational view means in practice that if a conversation goes badly, it is always a joint achievement. On the other side, a conversation can only be successful if both participants join in and make it so as Ken Gergen points out. In management, it means that there is nothing one person alone can do to be a good manager. Good ideas don’t count as good ideas, if other people don’t treat them as such.

New leadership is about an awareness of creative and destructive patterns and having the ability to influence what is going on. In a creative pattern, the participants build on each other’s contributions. The conversation, thinking and action are in a process of forward movement.

Destructive patterns are the most harmful in terms of organizational viability. These patterns don’t contain forward movement but running in circles. People and organizations get stuck! People slow down in bitterness and silence, or even to the breaking of the link. The most destructive patterns often begin subtly, but unless they are worked with soon, not only will relations suffer but the whole network will deteriorate.

Being aware of the patterns includes being aware of the roles that we play. Whenever we speak, we do two things: we subtly define ourselves and define the other. Does the speaker in a company context define herself as one who can talk down to others or as an equal? What we say is important to the viability of the organization but the way we say it can be equally important. Talking down or talking up between people creates an asymmetry that leads to bad decisions and inefficient movement of thought.

The machine metaphor meant that we tended to think that the people “above” us have significant power. They are in control. We thus talked up to them. They should decide. They should do things for us because they were the ones who were responsible, not us. Knowing that they are not in control raises the question of a need for a new distribution of responsibility. Bottom-up as a metaphor is as harmful as top-down when the common goal is resilience.

There is no aspect of work or leadership that takes place outside the realm of communication. Human agency is not located or stored in an individual, contrary to mainstream economics. The individual mind arises continuously in communication between people.

Being skilfully present in the forward movement of thought and relational action is the new meaning of being rational.

.

Thank you Ralph Stacey, Doug Griffin, Ken Gergen, Marcial Losada, Katri Saarikivi and Paul Ormerod

Links: “Resilient Performance in an Age of Uncertainty” “Possibilianism” “Stanley Milgram and the uncertainty of evil” “The fluid core“. “On functional stupidity and trust“. “Tulipmania” “Neuroeconomics

11 Responses to “Resilience, rationality and how we make decisions”


  1. Thank you Esko! Great article. I have come across similar challenges in customer journey mapping analysing. Many companies and agencies would like to take a shortcut and only analyse the journey related to a single brand only those who chose to buy it. I find such an approach insane. You can learn most from those who did not buy and the customer is interacting with several brand in very different contexts and channels. Taking a shortcut means totally missing the market dynamics. Like you very well wrote, learning comes from interacting, and customers learn from engagements with different brands. I think the most important thing is that we need to accept complexity and do our best in adapting our own actions to it.


  2. across similar challenges in customer journey mapping analysing. Many companies and agencies would like to take a shortcut and only analyse the journey related to a single brand only those who chose to buy it. I find such an approach insane. You can learn most from those who did not buy and the customer is interacting with several brand in very different contexts and channels. Taking a shortcut means totally missing the market dynamics. Like you very well wrote, learning comes from interacting, and customers learn from engagements with different brands. I think the most important thing is that we need to accept complexity and do our best in adapting our own actions to it.

  3. Piero Formica Says:

    Dear Esko

    I have enjoyed your piece on resilience and rationality. In the 1700s Abbot Galiani, an Italian economist based in Naples, used to say that markets are conversation, from latin cum-versare which means dancing together. All the best, Piero PS- So far, no feedback from your friend.

    Sent from my iPad


  4. Great article. “Communication is in fact a process of continuous coordination and knowledge creation”. Question: Are there ways of modeling and quantifying “process(es) of continuous coordination and knowledge creation.” Most organizations are metrics junkies – if you cannot model&quantify you cannot see, comprehend and manage, the thinking goes.


    • Kim, to me it seems that the best models for these kinds of processes could be found in (graph theoretical) analyses of complex networks (http://bit.ly/1bk6uSG). I’ve recently been looking especially at analyses of neural nets, e.g. what factors influence efficiency of the network and what kind of connectivity characterizes problems of different functions of the brain. Maybe still far from modeling actions of individuals but definitely nice food for thought :)


  5. Great piece Esko, if you have not already I think you would really enjoy Daniel Kahneman’s book Thinking Fast and Slow.

    Kahneman is a psychologist but won the Nobel prize for Economics. In a nutshell he argues the same thing: that in order for a more accurate economic model we need to redefine some terms, such as “rational”.

    There is a telling example where he discusses a colleague (who pioneered behavioral economics) having a professor that was a staunch believer in the individualistic model but did not apply it to his own buying and selling of fine wines.

    Looking forward to more posts.

    R

  6. Mika Koskinen Says:

    This leaves us with the facit of mission, vision and strategies from the boardroom and the action is happening in the teams. The one capable to lead the teams according to these statements will succeed. I didn’t quite get the destructing patterns. What was ment by them? What was the creative vs. destructive patterns. I think there has to be processes, projects and work that result from analysis and logistic thinking based, maturation and contingency, but I guess I’ve missed something, have I?


  7. […] Resilience and rationality […]

  8. Vasco Duarte Says:

    “Being skilfully present in the forward movement of thought and relational action is the new meaning of being rational.”

    I have been debating with myself about the meaning and the need of being “rational”. I’ve coined a phrase “rational optimism” to define in my own mind this blind faith in the role of “rationality” as a tool to solve all problems.

    In a complex environment, rationalism has to taken on a new form and role. Maybe it is what you describe above, or maybe it is something else. still, i’m not sure that “rationalism” is the best way to describe “coherent action” in a complex environment. (re: analytical v. synergistic mindset).

  9. Timo Hämäläinen Says:

    Great post! It resonates well with our studies of wicked policy problems in public sector management. It seems that we need a more nuanced understanding of the uncertainty that managers and organizations must deal with in today’s increasingly complex and uncertain world. J.-C. Spender (Industry recipes) has a nice typology of managerial uncertainty that differentiates between situations where one has an appropriate cognitive frame to understand the situation but not sufficient info and situations in which the frame is insufficient to interpret the situation. Both of these situations are further subdivided into situations where there are, or are not, other players causing uncertainty, i.e. “ignorance” and “indeterminacy” (sufficient frame) vs. “irrelevance” and “incommensurability” (of cognitive frames). It seems that most policy problems are wicked and involve fundamental uncertainty – i.e. insufficient and incommensurable frames; whereas the traditional rational management approach emphasizes only the need for additional evidence -the development of new and richer frames is not an issue. The real challenge of organizations is dealing with this more fundamental uncertainty by collective sense making and reframing processes.


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